Rebound Of Industrial Metals Expected To Last Through Second Half Of 2015

By @chelean on
Aluminium ingots
IN PHOTO: Aluminium ingots are seen outside a warehouse that stores London Metal Exchange stocks in Port Klang Free Zone, outside Kuala Lumpur, March 23, 2015. Malaysia's customs agency hopes to reach an agreement soon with the London Metal Exchange, after the LME threatened to stop registering new metal in the country if the new Malaysian Goods and Services tax, due to take effect next month, was levied in two bonded zones there, a customs official said. Malaysia is a major storage point for LME metals, holding more than 430,000 tonnes, including nearly half of the LME's nickel stocks, 85 percent of its tin, a third of its lead and almost a fifth of its copper inventories. REUTERS/Olivia Harris

The past few days saw the Greek debt crisis hound the prices of commodities as investors erred on the safe side and waited for the next chapter to unfold. But as Greek Prime Minister Alexis Tsipras finally decided to accept creditors' proposals to end a standoff over a Eurozone bailout, industrial metal prices rebounded over renewed investor confidence.

"The market has come to the conclusion that this may not be as big of a deal as they were originally fearing," Tim Evans, chief market strategist at Long Leaf Trading Group, Inc. in Chicago, said. "Metals are going to reflect investor sentiment globally, and the view is one that there is not a lot of fear backing into the market, which bodes well."

Copper, lead, nickel, tin and zinc prices rose in the London Metal Exchange (LME), with aluminium being the biggest gainer with a 2.1 percent increase at US$1,727 [$2,300] per metric tonne — its highest since May 28. These same metals posted losses last Tuesday after Greece missed a deadline to repay the International Monetary Fund. Growing concerns on the slowing demand from China, the world's largest metal consumer, further decreased investor sentiment.

Despite the underwhelming performance of these base metals in the first half of the year, Barclays Capital Markets' Jim McCormick expects these metals and other cyclically linked sectors to benefit from better global growth in the second half of 2015. Moreover, he is increasingly bullish on emerging market equities, expecting overall portfolio returns to be modest over the next six months.

One of the industrial metals that analysts are still optimistic about is nickel, as the metal's LME inventory eased to a total of 12,000 tonnes from 460,000 tonnes after declining for 11 straight days. Though the metal remains volatile, analysts at UBS is forecasting a significant increase in nickel prices in 2016 to US$8 a pound, representing an increase of 40 percent on current levels that are less than US$6 a pound.

Patricia Mohr, vice president of economics and commodity market specialist at Scotiabank, also thinks that the metal is poised for a comeback. "As stainless steel production moves up further in China, and they work down their inventories of ore, we feel and hope the nickel price is going to strengthen next year, maybe later this year, but by next year at a minimum," she said.

Nickel stocks will definitely stand to benefit from this forecast, including Russian nickel copper sulphide miner Amur Minerals Corporation (London AIM: AMC). The company has already secured a production license for its Kun-Manie flagship project located in the Russian Far East, and is now moving forward with the second phase of preproduction assessment.

Aside from the optimistic nickel outlook, Amur Minerals remains attractive to investors because of its focus on a single large-scale mining project that is considered to be one of the top 20 largest nickel copper sulphide mines in the world. Preliminary unaudited results done by Amur Minerals indicate a range of nickel prices at US$7.50 to US$9.50 per pound of nickel over a 15-year production, translating to a potential net present value of US$709 million to US$1.436 billion.

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